State and Local Public Policy from the Mercatus Center

Menu

Tag Archives: BP

[In the] 1979 comedy from the Monty Python team, the hero ends up whistling the song “Always Look on the Bright Side of Life” despite having his hands nailed on each side of a cross.

It seems British Petroleum took that lesson to heart. Fortunately, the company found the bright side of the oil spill, which sounds a lot like Bastiat’s broken window fallacy. Planet BP, an online internal publication sent “reporters” to the gulf, and interviewed some locals who still love the big sunflower. From the WSJ:

“Much of the region’s [nonfishing boat] businesses — particularly the hotels — have been prospering because so many people have come here from BP and other oil emergency response teams,” another report says. Indeed, one tourist official in a local town makes it clear that “BP has always been a very great partner of ours here…We have always valued the business that BP sent us.”

Milton Friedman called this the most persistent economic fallacy in history. Moving money around isn’t the same as growing the economy. The broken window fallacy lauds simple currency exchanges to replace senseless destruction, instead of focusing on growing the total productivity. It’s like running in place, but believing you’ll win a race.

As oil continues to spill into the Gulf or Mexico, the states around the slick face many tragic consequences including damage to ocean life, the threat of oil washing onto land, and lost tourism.

One of the greatest economic effects will come from damage to the area’s seafood industry. Market Watch reports:

“Looking back at the Exxon Valdez spill, there were significant fishery declines,” said Jackie Savitz, a senior scientist at Oceana, an environmental advocacy group. “There is no question that fishery populations are going to be set back.”

She noted that fish larvae are especially susceptible to oil and that the Gulf is a breeding ground for some of the country’s most commercially valuable species, including bluefin tuna, grouper and snapper.

While an unprecedented supply shock like the BP spill would hurt any industry, Gulf Coast fisheries were in an unenviable position before disaster struck.

The lack of property rights in these fisheries left the area highly susceptible to a Tragedy of the Commons. Without being able to profit from the long-term health of a fishery, fishermen have incentives to overfish in the present. Gulf Coast fishing is currently regulated primarily by Individual Fishing Quotas, a blunt tool which relies on government command and control rather than market incentives to preserve fisheries.

While oceans often suffer from the Tragedy of the Commons, Elinor Ostrom’s Nobel Prize for her work on common pool resources reminds us that there are solutions.

In Fencing the Fishery, Donald R. Leal explains the importance of allowing commercial fishermen to have a stock in a population’s long-term health, aligning profit incentives with the preservation of fisheries. Gulf Coast regulators should allow for such market-based solutions to help the region’s economy recover.